Yours truly

This is our Blog on Personal Finance. We will attempt to be analytical as well as educative. We will tell you what we like and what we don't. We will tell you what we do with our money and what we tell you is what we will follow for us. Tell us what you like to see.

A Term Insurance plan is the best form of life insurance compared to endowment plans or ULIPs, as you can get a high cover for a low price. This is because the entire premium you pay goes towards covering the risk and there is no investment component. Buying sufficient term insurance cover is of utmost importance and should be done as a priority task while planning your finances.

Should you take a term cover only for yourself or for your spouse as well?

A term cover essentially seeks to compensate for the loss in income in case of death of the insured. Usually pure term cover is not issued to non working people. However, if your spouse is also earning, it is recommended to take a term cover in both your name as well as for your spouse.

Parameters to be considered when purchasing a term policy:

Quantum of cover: The life insurance you take in your name should be sufficient to take care of regular expenses of your family in your absence in addition to taking care of important liabilities and goals for your family. Remember to take into account the inflation factor. Some plans give you an option to increase or decrease the Sum Assured amount based on your needs, which can be quite beneficial. Consider your spouse’s income if any, your liabilities, your dependents and critical financial goals before you decide on the amount of cover you need. You can estimate the life insurance corpus you need by using the Life Insurance Planning Calculator.

Time period and Age of Insured:Generally, you must have insurance till the time you intend to work. It doesn’t make sense to take a policy only for 10-20 years, till you are in your 40s, as those are relatively non-risky years. Insurance companies offer plans for fixed terms of maximum 30 years in most cases. Some plans offer higher terms of 35 and 40 years as well. Companies also specify the maximum age of the insured at the policy expiry, which is generally 70 years. Some companies like Aegon Religare, HDFC Life and ICICI Prudential specify this as 75 years. Higher this age, the better for the insured.

Premium payment term and modes: Companies offer flexible premium payment modes of yearly, half-yearly, quarterly or monthly. In comparison to a yearly payment option, a half-yearly payment option will work out slightly more expensive. For example, for policies by Bharti AXA and DLF Pramerica, half-yearly premiums are 0.52 times the annual premium. Most companies also offer a single payment option. However, this means, your premiums are front loaded, and in case of an early death, the premium for the remaining term goes waste.

Claim Settlement Ratio: This is by far the most important aspect to be considered. Claim Settlement Ratio gives an idea of the past claims settled by the company in relation to the total claims received. Companies like LIC, HDFC Life, ICICI Pru Life, SBI Life, Bajaj Allianz and Kotak Life have high ratios, while DHFL Pramerica, Edelweiss Tokio and Future Generali are among those with lower settlement ratios. Choose a policy with a high settlement ratio. Please note that the settlement ratios given are at the company level and not at the individual plan level.

Which policy should you buy and which should be avoided?

We have analysed pure term insurance policies of 14 companies on the basis of the different parameters. Of the companies analysed, you can consider ICICI Pru Life’s iCare II or iProtect and HDFC Life’s Click 2 Protect Plus policies on the back of low premiums and high settlement ratios. Of these two, HDFC Life’s policy is cheaper. Readers are advised to call the customer call center for more details of the differences in the policies offered by ICICI at the time of purchasing the policy.

Other policies which can be considered on the back of high settlement ratios are Bajaj Allianz and Kotak Life Insurance. You can also consider Aviva Life and Bharti Axa for low premium, although the settlement ratio is not very high. LIC has the highest settlement ratio at 98%. Many people also prefer LIC due to the brand name and the history associated with it. However, this plan is by far the costliest among the policies we have compared.

Plans by Aegon Religare, Birla Sun Life, DHFL Pramerica, Edelweiss Tokio, Future Generali, Reliance Life Insurance and SBI Life can be avoided either due to high premiums or low settlement ratios.

Have you bought your term policy yet?

Most of us plan, plan and plan, but fail to execute the plan. The importance of a term plan cannot be emphasized more, as your family’s needs hold paramount importance in your absence. So have you taken care of this yet? If not, this should be one of the first things you need to do on your ‘To-Do’ list. Open your laptop now to purchase your term policy or call your insurance advisor to help you purchase your term plan.

Please note that we have only considered certain products offered by insurers. The above insurers may have similar or other plans which fall under the ‘pure term plan’ category. A detailed comparison of the different products analysed is available below. If you prefer to download the excel file, please click here. For more details, refer to individual company’s prospectus. Kindly note that this analysis covers offerings from major insurers only & this is not an all-product comprehensive comparison. The current analysis may include additional products or may exclude products from our earlier analysis based on availability of information. The analysis is valid on the date being published.

How should you go about buying a term plan?A term plan is the simplest and most straight forward form of insurance. However, insurance companies go through different parameters before deciding if you are eligible to purchase the policy or not. Assessing your medical fitness is one of the basic things done before the policy is given to you. Sometimes, a past medical condition, even if it is a decade old can be a cause for refusing the policy to you. Sometimes, you may be working in a country which is considered to be risky by the insurance company, and hence the policy may be refused. In such cases, you can seek the help of an insurance advisor or insurance brokers such as Medimanage or Policy Bazar to help you out. The popularity of term plans has increased in the recent past, with online channels also gaining importance. Buying an online term plan is not only easy, but can also work out to be cheaper. If you purchase a term plan online, you need to fill in your details, make the premium payment and upload your documents. You will then be asked to do your medical tests. The policy will be issued subject to satisfactory documents and medical test results. What are the documents needed to purchase a term cover?Generally insurance companies require an ID proof, address proof, salary slip or IT returns, passport size photographs, cancelled cheque and cheque for the premium amount. The requirement for the documents changes on a case to case basis. If you purchase an online term plan, you can also upload these documents online and make an online payment for the premium. Insurance Demat - Should you opt for this?In 2013, IRDA introduced the concept of online insurance policies, where all your policies can be maintained in the demat form. An e-insurance account will need to be opened, and these details should be furnished when you buy a new policy. Insurance demat will not only save time and efforts, but is also a safer option to manage your policies. To know more about the insurance demat, please click here. It is recommended to opt for digitisation of insurance policies.

What are life insurance policies under the Married Women’s Property Act?Life insurance policies taken under The Married Women’s Property Act or the MWPA can protect your wife and/or children in case of your death, wherein the proceeds of the policy will be used for the intended beneficiaries only and not for anyone else. If you are a businessman, then it is highly recommended to take your insurance policy under the MWPA. To read more about this, please click here.

Rebate on large sum assured; Rebate available for female applicants to the extent of 5%.

Bajaj Allianz

70 years

Annual, Semi- Annual, Quarterly, Monthly

Option to choose additional riders of Accidental Protection, Critical Illness and Hospital cash benefits, Premium rebates available in the form of High Sum Assured rebate (subject to policy limits) and Joint Life rebate (when a joint policy is taken) as there is an option to have a joint term insurance cover too.

Claim settlement: within 48 hours of submission of all relevant documents. Reward for non-smokers opting for term insurance above Rs. 50,00,000. Variants of the policy provide regular income to the family members

Accident Rider and Critical Illness Rider can be opted for. Non smokers have benefits on premium to be paid. If the person commits suicide, within 12 months of policy commencement, 80% of the amount will be paid

Edelweiss Tokio

80 years

Annual & One Time

Discount available on choosing higher Sum Assured and for women above 22 years. Additional riders like waiver of premium, accidental death and accidental total and permanent disability can be chosen.

Future Generali

68 years

Annual, Half yearly, monthly (only ECS option)

Accident Rider can be opted

HDFC Life

75 years

Annual, Half- yearly, quarterly or monthly and single premium

Accidental Rider can be opted; Income Option can be taken (10% on death and 90% as monthly income over 15 years); Income Plus option can be opted (100% on death and in addition monthly income equal to 0.5% of SA over 10 years)Policy cover can be increased on certain milestones like marriage and parenthood. Critical Illness Rider also available.​

ICICI Pru Life

iCareII- 65 yearsiProtect - 75 years

Annual, Half- yearly, quarterly or monthly and single premium

Accident Rider can be opted in option 2 of the plan equal to SA, subject to a max of Rs. 50 lakhs

Kotak Life Insurance

75 years

Annual and MonthlyThe following loading will be used to calculate the Premium.Yearly – 100% Monthly – 8.8%

Recurring payout can be opted for on death; Waiver of premium possible in case of becoming permanently disabled; Preferential rates for female applicants; Riders can be opted for

LIC

75 years

Annual

NA

Reliance Life Insurance

75 years

Annual

Can add accidental death and total and permanent disability riders. Waiver of premium allowed for permanently disabled person who is insured. Discount for women in the premium.

SBI Life

65 years

Annual, Half- yearly, quarterly or monthly and single premium - Premium payment mode depends on the type of policy chosen

Availability of four plan options: (i) Level Term Assuranceii) Increasing Term Assurance (iii) Decreasing Term Assurance (Loan Protection) (iv) Decreasing Term Assurance (Family Income Protection)Critical Illness Rider, Accidental Death Benefit Rider and Accidental Total and Permanent Disability Benefit Rider can be opted for; Special Rebates available for higher sum assured

Company

Claim Settlement Ratio for the Year 2014-15 (Individual Death Claims paid / Total Individual Death Claims)

Comments

Our Analysis

Reference Links

Aegon Religare

89.78%

Premium is among the lowest and there is a facility to choose additional riders; However, settlement ratio is not very high

Can be avoided due to low claim settlement ratios, although premium is among the lowest

* Claim Settlement Ratio is for the respective company, and not at the plan level. Source: IRDA Annual Report 2014-15

Disclosure : Kindly note that Directors of the Company are currently associated with ICICI Prudential & HDFC Standard Life as Life Insurance Advisers. We value our integrity & we believe that what we have presented above is a genuine comparison, keeping your interest ahead of ours.

Executive Summary – Quality Education is important but beyond the reach of all as it is expensive. Banks offer educational loans to deserving students for higher education. We have compared the loan offerings of four banks - SBI, Axis Bank, IDBI Bank and Central Bank.

What is an Educational Loan?Education is a stepping stone for your success and it is important that you get the right educational qualifications at the right time. An educational loan is financial support given to a deserving persons so that they can complete quality education as per their choice.

Why should I take an educational loan?Quality education is important in today's world but expensive. You need to plan in advance to take care of the finances required. You can focus on getting admission, studying and managing your course well, if the finances are taken care of. There are various expenditure items like caution deposits, tuition fees, specialized courses' fees etc. An educational loan will ensure that you do not worry about finances and concentrate on your education.

What are the benefits of an educational loan?Financial Discipline – As a student, you get the loan for your education which you may not be able to afford. Once you start earning, you will have to repay the loan which will instil a sense of financial discipline in you. You will be cautious before spending unnecessarily.Parents need to save money for old age and emergencies – Parents want to give the best of everything to their children. Most parents have children's education as one of their financial goals. But they also need to save money for life after retirement and emergencies. You do not get a loan for retirement. So it is better to take the leverage of educational loans which are easy to avail of and have customer friendly repayment options.Healthy Credit score – If you pay the EMIs on time without any payment lapses, you can build a good credit history which will help you get favourable conditions on loans that you will take in future or get loans and credit cards more easily.

How do I apply for an Educational loan?You should first calculate the amount you need. Apart from the tuition fees, you will need money for books and equipment, library fees etc. If you are studying away from home, you will have accommodation expenses. You should add up all these expenses and get an estimate of the sum that is required. You can then to any of the banks offering educational loans to get the details. The potential lender will check if the loan applicant has got admission. Other checks include ability to get a job, quality of course, credit history of co-applicant, amount required etc. If the lender is satisfied with the current status, the loan is sanctioned.

Higher Education with Education Loan

Can I get a comparison of educational loans available in the market?

Features

Axis Bank

IDBI Bank

Central Bank of India

State Bank of India

Details

.​Axis Bank provides financial support to deserving students to pursue higher professional or technical education. Once the loan is sanctioned, the loan is disbursed as per payment schedule to the educational institution or vendor accordingly

​IDBI Bank provides different loans for vocational courses, non-vocational courses, for students getting admission under Management Quota and students falling in the Financial Inclusion programLoans are also provided for students of Executive Programs.

Loans are available for graduation, post graduation courses, vocational courses and professional courses with duration of 1 year or more.

It covers fees, purchase of equipment and books, travel expenses, study tour costs and project expenses.Disbursement is done directly to the education provider. If given to borrower, original receipts have to be submitted.

SBI provides different loans -Scholar loans for education in IITs. IIMs etc.Student loans for higher education, Global Ed-Vantage loans for education abroad and Skill Loan for vocational loans. It covers fees, purchase of equipment and books, travel expenses, study tour costs. project expenses. In some loans, it includes the cost of a two-wheeler up to Rs. 50,0000.

Different loans have different minimum and maximum limits.The Global ED-Vantage Scheme loan has a minimum of Rs. 20,00,000 and a maximum of Rs. 1.5 crores.

Student loans have a limit of Rs. 10,00,00 for courses in India and a a maximum limit of Rs. 20,00,000 for courses abroad.

A margin of 5% for studies in India and 15% for studies abroad is required for loan amount greater than Rs. 4,00,000

In some cases, the margin money is decided on a year-on-year basis.

Rate of Interest

The rate of interest varies from 15.50%-17.50% depending on the loan amount. Girl students get a discount of 0.50%.

A rate from 10.75%-13.25% depending on the type of course and loan amount.

The interest rate is around 12% with concession of 0.50% for girl students.

There are 4 types of loan schemes available and the interest rates are different for each.Global Ed-Vantage Scheme loans are at 10.90%The Scholar Scheme loan interest rate ranges from 9.60% to 11.10% p.a.The Skill loan is offered at 13.10% p.a.

There is a 0.50% concession for girl students. There is a discount given if interest is serviced promptly.

Collateral

In some cases, collateral may be asked for.Annual premium for an LIC policy in favour of the bank might be included to provide security to the bank.

- Collateral is not required for a loan amount < Rs. 4,00,000 or for loans under the Financial Inclusion program.

- Third party guarantee is required for loan amount from Rs. 4,00,000 to Rs. 7,50,000.

- Above that, collateral in the way of land, Bonds, bank deposit etc. is required.

- Collateral is not required for a loan amount < Rs. 4,00,000.

- Third party guarantee is required for loan amount from Rs. 4,00,000 to Rs. 7,50,000.

- Above that, collateral in the way of land, Bonds, bank deposit etc. is required.

Insurance is required in favour of bank for amount equivalent to educational loan.

Depending on the type of loan the sum for which collateral is required is different. For example, the student loan requires collateral for a sum of Rs. 7,50,000 and more. In a Global Ed-Vantage Scheme, tangible collateral security is mandatory.

Processing Fees

There are no processing fees involved.

No processing fees for Indian courses1% of loan amount up to a maximum of Rs. 5000 is charged for loans taken to study abroad.There are some charges added.

Rs. 10000 for Global Ed-Vantage Scheme loanThere is no processing fees for loans taken to study in India or abroad in the other loan schemes.

What are the key things to consider while taking an educational loan?1. An educational loan needs to have a co-applicant. It can be parents, siblings or spouse and parents-in-law.2. The co-applicant can get tax benefits under section 80-E of Income Tax Act.3. Public sector banks usually offer a discount for female students on the interest rate.4. If the student repays the loan properly, the credit score is benefitted greatly. But default in payment will affect the credit scores of the student for whom the loan is taken and the co-applicant.5. Most colleges/universities abroad require insurance. You should ensure that the loan covers it.6. The loan may not cover the entire expense of education abroad and so the student has to look at other avenues like savings, scholarship or part time job. Some loans have a limit on different components of the fees. You should be aware of that and manage accordingly.7. If the student stays in a foreign country after the course is over, the co-applicant should repay the loan to the bank.8. Repayment starts usually 1 year after the course is over or 6 months after getting a job whichever is earlier.9. You should be ready with a backup plan to pay off the loan in case the student does not get regular income even 1 year after the course.

What is the education portal www.vidyalakshmi.co.in all about?The government launched the education portal www.vidyalakshmi.co.in on 15th August 2015. It is being maintained by NSDL e-Gov. It has details on how to fund your education via loans through the Pradhan Mantri Vidya Lakshmi Karyakram (PMVLK) and other scholarships. As per the site, 64 loan schemes are available and 37 banks have registered with the portal which means you can apply to get information and apply for educational loans provided by banks and Government Scholarships using only one medium.

This article has been originally published in Teenager Today Magazine in May 2016 issue.

Executive Summary – Let us face it. Most of us want to have the lifestyle of the rich. We are constantly looking for ways to increase our income and wealth. Some ways to get rich are to have a steady source of income, spend less, save more, invest, make the best use of opportunities, review your money situation and earn your livelihood doing something you enjoy.

There are quotes like, 'Money isn't everything' and 'Money can't buy happiness'. But at the same time, people want shiny cars, big houses, best education for their children etc. All these things cost money. Everyone wants to have a good life and money surely helps in achieving that. The difference is that you should aim to build wealth rather than earn money via some quick get rich schemes and spending it all. Let us look at some ways to set you on the path of riches -

1) Have a Steady Source of Income – You should of course start earning money to get rich. You should have a regular income stream that can be used to make you rich. It means you have a job or run a business that allows you to deposit cash in your savings bank account on a regular basis. This will ensure that your money kitty grows over a period of time.

2) Spend less and Save more – Money can buy a lot of things but the best way to get rich is to keep the money with you or use it for investing to earn more money and build wealth. This means spending smartly and leading a frugal life. You need not deprieve yourself of comfort or be a miser but it is important to keep a track of your expenses. Make sure you are following your budget. It is important to keep your debts in check as if they spiral out of control you will have a tough time repaying the amount along with interest. This will ensure that the money is with you to take action on it to become rich as you need money to make more money.

3) Invest Invest and Reinvest – Money is of no use if it is sitting idle. It even gets devalued if it is lying in your locker or account. You should invest money in various investment avenues so that your money can grow and make you rich. There are many investment avenues such as mutual funds, real estate, commodities, stocks. You should decide the asset allocation optimum for you and invest keeping your income, risk capacity and risk tolerance levels in mind.

4) Keep looking for opportunities – There are many opportunities around us to make money. You should be aware of what is happening around you and be ready to take action. For example, everyone wants to get fit and healthy and this has resulted in various types of fitness trainers and classes entering this industry to make money. People want to try out different fitness regimes such as Yoga, Zumba, cycling etc. and there are many people who have trained themselves as instructors and organizers of such offerings and have made money out of it. It is a good time to start the venture that you have dreamed about. People are open to ideas, willing to try out things and investors are willing to place a bet on potentially good business ideas. If you have a business idea, you should get it rolling. You can enter into network marketing or teach something in your spare time to increase your income. If you are good, you will earn a lot of money in these ventures.

"It is not always easy, smart or safe to get rich using shortcuts. The steps mentioned above will set you on the path to getting rich slowly but steadily. Do you consider yourself rich? We would love to know what did you do to become rich. "​

5) Review – You should have a financial plan in place with short-term and long-term financial goals. You should track your investments and review it regularly and tweak it as per changing market conditions and personal life.6) Love what you do - It is better to do something that you love to earn a living. If you like what you are doing, you will be more happy and will be willing to put in more hours of effort and hard work. You will be keen to learn and update yourself regarding your job. You will become better at your profession and ultimately earn more. This will lead to adding to one's wealth. more money. All of us cannot make a living out of singing or playing cricket how much ever we like it. But we can always choose our second or third favourite thing to earn a living.It is not always easy, smart or safe to get rich using shortcuts. The steps mentioned above will set you on the path to getting rich slowly but steadily. Do you consider yourself rich? We would love to know what did you do to become rich.

EXECUTIVE SUMMARY: Most of the time Doctors do not pay attention towards their retirement planning as they think that it is not for them. They pay more attention towards their professional achievement and other family goals. But who knows what is in the future. Doctors consider it as a complex activity however it is not impossible task. With little planning, discipline and focused investment this task can also be achieved. In this article we have shared some of the ways through which planning can be made easy for doctors.

Income, savings, investments and planning all of these come into the picture when doctors actually start earning. Often doctors start earning later than the professionals in other fields due to their educational requirement. Initially doctors face problems in saving up money because once earnings come into the picture, it is used in paying off the loan amount and there is very little amount left to invest by the end of month. And once the investment starts it only focuses on the future need of family or it is aimed to fulfil their professional achievement (Building Hospitals or Clinics). Also, during their initial investment stage they don’t realise the importance of retirement, they believe that retirement stage is not for them as doctors never retire. But as time progress they began realising that one cannot rely on the present income for a longer period of time; since the old age may not be helpful enough to fetch the same amount of income that one is earning now. So what’s the right way to plan for retirement? What are the points which doctors should keep in mind while planning for retirement? Let us look at some of the tips which can be helpful for Doctors:-​1. Get rid of Debt before Retirement – For doctors education loan is the biggest debt in the initial stage of their earning life. They should plan and pay it off as early as possible. Many doctors during their career take a huge loan either to build hospital or poly clinic. They should target and pay back the loan before retirement as living with debt during retirement can be very harmful. Also, in case of loans, extra care should be taken on the expenses incurred by doctors because control over personal expenses maybe useful in the future, but inability to pay the loan may prove to be very regretful in the upcoming years. However, with paying off the debt they should also start saving / investing so that both the things are taken care off.

2. Set Realistic goals: Even if debt is not the most significant factor, one should always have clarity on a long term goals. Does one wish to establish a clinic in the future? Is it going to be a hospital? How is it going to work out during the time of retirement? A target date has to be identified for this. One should try and attach the present income with the target set. Many doctors just assume based on their income as for them the target date may not matter, because of the thought that there is always going to be a plenty of time available. A clear vision may help one to work harder and get scope for improvement in monetary terms. Once the other goals are on track, doctors can then plan for retirement without any hurdle. Vague ideas may not prove to be fruitful for the retirement or any long term goal. It just enhances the delay of savings.

Plan for Retirement & Relax , Enjoy

3.Keep in mind - Retirement costs can be expensive: Most of the people, including doctors are of the idea that retirement may not be that expensive for them. But this is just a myth. Young age is the time when one has continuous inflow of money because of the work. Old age is time when there is no inflow of money but the outflow is also high. While planning for retirement one should also consider medical expenses, taking care of the children’s expenses if they are struggling for the career options, travelling and socializing expenses, etc. all these factors may come into the picture once the retirement time starts nearing. It is better to take precautions in the present itself.​4.Consider basic investment principles: How one invests can be as important as how much one saves. Inflation and the type of investments, plays an important role in how much one will have saved by the time of retirement. Choosing investment product according to the goal can be beneficial, like investment in equity proves to be a very advantageous concept for a long term goal like, child’s course fee or establishment of a hospital or for retirement. In the same way investments into debt markets is good for short-term purpose. Also, diversifying one’s saving over the financial products can be a good strategy as it reduces risk and gains good returns.

5.Donot compromise on Retirement Savings: No matter how important goal it maybe, one should never compromise on retirement savings. For example - one may have a child who wants to get into a course costing Rs.1 Cr and the amount is getting short by 30 lakh, so it’s better to try and get a loan that time which child will pay off once he/she gets a job. If you try to take out money from retirement corpus then it may hurt you very bad as you may not be able to save it up again. To avoid such situations one should treat retirement savings as expenses and should invest it into separate dedicated account through SIP (Systematic Investment Plan), NPS (National Pension Scheme), PPF (Public Provident Fund), etc.It is understood that doctors go through a tough time completing the studies and at a later stage a proper lifestyle starts; however, it is never too late to plan and start implementing to achieve a goal. Remember “Retirement Planning” is complex but not impossible, so start planning early and make your post retirement life healthy and wealthy.

Executive Summary: Confirmation Bias and Hindsight Bias are two significant concepts of behavioural finance which can often lead to taking incorrect financial decisions. Confirmation Bias refers to a tendency to look out only for information which supports your earlier beliefs or opinions about anything. Hindsight Bias refers to the belief that you could have predicted an event which happened in the past. Both these biases need to be avoided to make correct decisions. Understand all views of a subject before evaluating it and avoid overconfidence.

​Imagine that you have a Systematic Investment Plan (SIP) amounting to Rs. 5000 worth of investment every month in a large cap diversified equity mutual fund. You plan to accumulate a corpus of Rs. 10 lakhs at the end of 10 years using this investment. One day at work you get into an investment discussion with your colleague who is also investing in a SIP of another large cap diversified equity mutual fund. Your colleague insists that his investment is better than yours and he points out to a few reasons as to why your choice of fund may not be the best one. However, you are biased to continue investing in this fund as your best friend has also done so. So you start looking for information to confirm your choice and go out of your way in trying to prove to your colleague. This is known as Confirmation Bias.​Meaning of Confirmation Bias: Confirmation Bias is essentially a tendency to pay attention to information which favours your beliefs and opinions, while ignoring any other information. In the above example, this means that instead of looking for reports or research which talks of why your choice of fund MAY NOT be the best bet, you search for information which says that your choice was correct. So you only tend to look at one kind of information, which supports or goes by what you thought was right in the first place.Now let’s take another example. The 2008 financial crisis crippled financial markets and investments across the world. Suppose as an investor, you had always been wary of investing in the equity markets and directed 90% of your investments in bank fixed deposits. If after the financial crisis, you claimed that you knew that the event was going to happen and therefore you did not invest in equity markets, this is known as Hindsight Bias.

Have a balance between Confirmation Bias & Hindsight Bias

Meaning of Hindsight Bias: Hindsight Bias is the belief that one could have foreseen the happening of an event which happened in the past, as it was predictable and completely apparent for the event to have occurred. This is true even for non financial events like terrorist attacks or other situations like these. As these events look obvious in hindsight, this is known as Hindsight Bias.

Why are Confirmation Bias and Hindsight Bias not good? Both Confirmation Bias and Hindsight Bias tend to cause problems in financial matters as there is a skewed opinion while taking financial decisions. In the case of Confirmation Bias, the individual is only concerned to source information which ‘confirms’ his preconceived beliefs and notions. He does not look at the contrarian view to a situation. This actually means that the individual is emotionally dealing with his investments and not taking an objective view while evaluating them. Also, there is no all rounded information while evaluating a decision and this can often result in taking an incorrect decision. In the case of Hindsight Bias, the individual tends to become overconfident, as he begins to believe that he can foresee future events. Overconfidence by itself is quite a dangerous behavioural finance trait which can often lead to taking incorrect financial decisions.

How to avoid these biases? Simply being aware of these biases will not help you overcome it. You will need to proactively work on avoiding them. For example, in the case of Confirmation Bias, when you believe that a financial product or decision is correct, search for information which can give negative feedback on the subject. Do not blindly go by third party opinions. Do your own research, understanding the pros and cons of every decision you make. Discuss your woes and opinions with your financial planner to understand a professional view. Play the ‘Devil’s Advocate’ when thinking of money matters.​

Executive Summary: Two significant behavioural biases while taking financial decisions are Overreaction and Overconfidence. Overreaction occurs primarily due to Availability Bias, when one tends to give importance to the latest news or information and reacts in an extreme manner. Overconfidence is displayed by many individuals who have tasted success in their financial actions, albeit due to luck or by accident. One should avoid such behaviours and always remember to base their financial decisions on research and reasoning rather than emotions.

You may agree that people are inherently different from each other. Some show their emotions quite strongly, while others may be more subdued in expressing their emotions. Irrespective of the expressing capability, emotions play an important role in the decisions one takes. This is also true of money decisions taken by individuals in various cases. Two important behavioural biases are overreaction and overconfidence. So let’s discuss them one by one.

First let’s talk about Overreaction. As the term suggests, when you hear something and react more than you normally should, it is known as overreaction. An example most often cited is relating to car or plane accidents. Imagine that you were in a car accident in the recent past or if you witnessed one, then you would tend to be extra cautious while driving in the immediate future. You may even avoid travelling by air if you heard of a recent horrific plane accident. Over time, this behaviour will change and you will get back to your original driving mode or will start travelling by air again. So what does this behaviour explain? It just means that you have overreacted to a recent incident and have changed your behaviour accordingly. Has the road suddenly become more dangerous or have accidents increased overnight? Not really. But just because of your overreaction, this has changed your behaviour.

A similar action happens in your financial behaviour as well. When investors hear something negative about a stock or mutual fund, there is excessive selling even though the news may not warrant such a price correction. Similarly, when there is good news about a company, investors forget all the negatives and overreact by buying the stock aggressively. Over time, the price may eventually get back to the long term average levels. When people tend to rely more on the most recent news or on information that easily comes to mind, it is termed as Availability Bias. Availability Bias then leads to Overreaction, which results in taking extreme decisions based on the available information.​

Always remember to base your financial decisions on research and reasoning rather than emotions.

Now let’s talk about Overconfidence. In simple words, overconfidence refers to the quality of having more confidence than you should, and as a result, you misjudge your ability or knowledge about a specific case. In life, this can often land you in trouble, as you end up taking incorrect decisions in a particular situation.

This is no different when it comes to money matters, and overconfidence is almost always a sure shot recipe to disaster. Remember that there is an extremely thin line between confidence and overconfidence. Common examples cited are when investors get lucky with a few stock picks and assume that any stock they buy thereafter will do well. Another example is when you save a lot for your retirement and are overconfident that your retirement corpus is sufficient, but do not actually do the math to calculate its sufficiency. You may be spending a lot more than you should and therefore although think you are comfortable, you may not be so in reality.

So how do you avoid Overreaction and Overconfidence? It is obvious that these two behavioural characteristics have a lot to do with the nature of an individual and it may be difficult to change this. The first step to avoid Overreaction and Overconfidence is to actually recognize that you are subject to these qualities. You should avoid Availability Bias to avoid Overreaction. Remember that short term approaches to investments can do long term harm to your goals. Therefore take a view on the recent information only after doing thorough research. Similarly, when it comes to Overconfidence, recognize that your financial planner can give a better view on the subject as he has better access to market news. It is recommended to use reasoning and research to overcome emotions while making financial decisions. ​

Executive Summary : ​Planning and managing international holidays is not easy. Apart from deciding on the budget and the itinerary, it becomes very critical to plan on the right mode of carrying money. Further, there should be continuous access to funds during the period of stay as well. However, in majority of cases, this aspect is not given much thought and it is usually a decision taken at the last minute. This results in unwise modes of carrying money and spending while on international holidays. So what are the different modes of carrying money abroad?

Popular modes of carrying money on international holidays:The most popular modes of carrying money abroad are in the form of cash, travellers cheques and cards - could be credit cards, debit cards or other prepaid cards. Carrying cash used to be the preferred mode till about a decade back. However, today, India’s central bank RBI has imposed regulations on how much one can carry abroad in different currencies. Further, it is not very safe to carry too much hard currency abroad. Not only is it more likely to lose the cash, it also becomes uncomfortable to carry it around. Another option of carrying money abroad is by means of traveller’s cheques. These are typically cheques issued for fixed amounts by banks or select travel agencies, which can be used to make payments abroad. It is easier and safer to carry traveller’s cheques compared to cash, as it can be replaced if it is lost or stolen. However, over the past few years the popularity and use of traveller’s cheques have reduced primarily due to other alternatives such as credit cards, debit cards and widespread presence of ATMs. So how do credit cards compare with options like cash and traveller’s cheques?

Benefits and Drawbacks of Credit Cards:A credit card is plastic money and therefore carries benefits of ease of use, safety and widespread acceptability. First, unlike cash, it is convenient to carry a credit card while on a holiday. One need not visit a bank or foreign exchange agency to purchase traveller’s cheque or convert currency. Even after the trip is completed, there is no hassle of being left with foreign currency or unused traveller’s cheques. It is also a safer way of keeping oneself funded. Even if a credit card is misplaced or stolen in a foreign country, it is possible to block the card immediately and safeguard oneself against unauthorised use. Credit cards have become extremely popular over the past decade. Banks also issue specific credit cards for travel purposes, with additional benefits. The popularity of credit cards has increased acceptability, especially in tourist destinations.However, the catch in using credit cards abroad is the fee involved. Use of credit cards in an international location usually involves payment of exchange fee, which is almost 3% - 3.5% of the transaction value plus service tax. If one uses credit cards to purchase high value items, this can work out to be quite a substantial amount. This fee is usually applicable even on debit cards. Further, if the credit card is used to withdraw funds from ATMs abroad, a withdrawal fee is applied in addition to the exchange fee. Another drawback of using credit cards is that if the card is lost or stolen abroad, one will get the replaced card only on arriving back to the home country. This means alternative funding options will need to be worked out for the remaining period of the trip.

Safe & Secure International Holidays with Credit Card

Things to remember while carrying credit cards: If one is planning an international holiday, it is important to check with the bank if the credit card he/she has can be used abroad. If not, the user should explicitly request the issuer to authorise this use. This is because, RBI has mandated credit card and debit card issuers to disallow international transactions by default, unless specifically requested by the user. Even otherwise, it is always better to inform the bank so that the card is not blocked on the back of suspicion. Further, one must ensure that the card is a chip based card. It is useful to estimate beforehand the planned expenses on the credit card and to calculate the extra amount to be paid as transaction fees. Remember to enquire with the bank all the fees and charges that will be levied on using the card in another country.​Should credit cards be used on international holidays?Keeping in mind the relative advantages and drawbacks of each payment mode, it is always recommended to carry different options of payment while travelling abroad. This becomes especially relevant when one is travelling for durations longer than one week.For smaller expenses or for petty expenses, it may be useful to carry cash in the local currency. Cash is also necessary when travelling to remote locations where there is no accessibility to a bank or money exchanger. Do not keep all the cash in one place. Instead of converting all the currency to the local currency, it may be useful to carry a combination of a popular currency such as US dollar and the local money. Some banks issue international credit cards which have a nominal or low currency conversion fee. This can work out to be cheaper than normal credit cards. Prepaid travel cards are another option. Prepaid cards are prefilled with money and do not work on credit. Once the card balance is exhausted, it can be reloaded at any time by the user or anyone who is authorised by him. Many banks allow remote reloading of the prepaid card as well. Although these cards also charge currency conversion fee, it may be at a preferential rate or absent if one spends in the same currency of the card. However, these cards come at a cost, similar to normal credit cards. Carrying an amount in the form of traveller’s cheques also can be useful. These can be used for big ticket items, which can avoid the payment of fees applicable on credit cards.Therefore, rather than solely relying on credit cards for international holidays, a combination of different payment options for different expenses can work well in terms of safety, cost and convenience.